The collection of sales and use taxes is a business requirement of retailers and merchants throughout the United States. In this regard, taxing authorities at the local, state and federal levels require both large and small businesses to collect a sales tax for each item of goods they sell in the course of commerce.
To meet taxing authority requirements, a typical merchant must calculate the sales tax for each customer transaction, add the calculated sum to the invoice or bill presented to the customer for the goods sold, collect the sales tax from the customer with the purchase sum, deposit for safe keeping the collected taxes and finally remit and account for the collected taxes to the appropriate taxing authorities on a periodic basis, which is typically on a quarterly basis.
To compensate the merchant or retailer for the burden of acting as the agent for the taxing authority, the merchant is allowed to keep the periodic interest accrued on the collected tax dollars during each collection period.
While the above described method of collecting and remitting sales and use taxes has been effectively employed for many years, such a method is not cost effective and costs the taxing authorities billions of dollars each year. In this regard, the taxing authority not only loses the accrued periodic interest known as "the float," but the authority also loses the use of the collected money until it is remitted by the merchants for the collection period. Moreover, since the taxing authority does not have the use of the collected money until it is remitted, the money is not available for use to pay the monetary obligations of the taxing authority. Thus, the taxing authority may be compelled to borrow money to meet its financial obligations.
Another problem with not having the collected funds for immediate use by the taxing authority is that higher prices or interest on goods and services, required by the taxing authority, may be imposed by those providing such goods and services. In this regard, while some providers may be willing to wait for payment, others may not. Thus, certain vendors may not be willing to deal with a taxing authority because of delays in being paid. Other vendors may raise the price of their goods and services, and still others may impose late charges or interest. Such additional charges add to the cost of doing business and thus, makes such governmental agencies less cost effective. Moreover, such increased cost must be paid by the general public as such additional expenses can only be paid by increasing taxes.
Therefore, it would be highly desirable to have a new and improved method and system for collecting sales taxes that would make taxing authorities more cost effective and thus, by helping government, would benefit the public.
One proposed solution to the above-mentioned problem is to require merchants to remit the collected taxes on a more frequent basis; for example, on a weekly, semi-monthly or monthly basis. However, legislatures have been steadfast, requiring collected taxes to be paid quarterly. More particularly, legislatures want to balance the rights of the merchants against the imposed duty of collecting taxes on behalf of governmental agencies. In this regard, legislatures have declared remitting taxes four times a year is not overly burdensome. Periods more frequent than four times a year however are considered not only an imposition, but also overly burdensome.
Therefore, it would be highly desirable to have a new and improved method and system for collecting sales taxes that would allow collected funds to become available to government more quickly, while at the same time, not causing a greater imposition on the merchants than imposed by the present tax collection methods.